The rupee has spelt good news for the Indian IT industry but the cheer could be muted to some extent by hedging losses at the end of the quarter. The rupee, which has dipped about 7.5-8% vis--vis the dollar already, is expected to depreciate in the short term but appreciate in the medium-to-long term.

As with other exporters, IT companies also stand to gain with rupee depreciation. Every 1% depreciation of the rupee has a positive impact of 30 basis points on our operating margins. However, it will have a negative impact on hedges. At the end of the quarter, we may have a situation where we have hedging losses and some translation gains, said Satyam CFO Srinivas Vadlamani.

Satyam hedges about 50% of its expected dollar inflows, in a bid to minimise impact of rupee movement either way, Mr Vadlamani added. While Wipro has about $3.5 billion worth of forex cover, TCS has about $3 billion and HCL, about $2.7 billion. Infosys has hedges amounting to $760 million.

We expect some outperformance in the topline while some EBITDA gains could be offset by hedging losses. Infosys, which had reduced its hedging position from $1.14 billion in the October-December 07 quarter, is best positioned to take advantage of the rupees dip.

It would be interesting to see how companies like TCS, Wipro and HCL manage this situation considering they have all increased their hedges, said Angel Broking IT analyst Harit Shah. Other experts believe IT companies only stand to gain and the losses on account of hedging would be only minimal.

Hedging losses are going to be minimal and will also be offset to some extent by the improvement in the companies margins. Large IT companies have been able to manage rupee appreciation reasonably well and the depreciation would ease off the pressure on them, said Gartner India research head Partha Iyengar.

Added Tholons CEO Avinash Vashistha: The industry has not taken a bet on the currency. Companies buy hedges only to protect them from any downslide and they may not exercise the option. Moreover, all the steps that have been taken by companies including productivity improvement, better bench utilisation and reducing SG&A will pay off better in this situation.